Rise In Rupee To Dent Profits Of Exporters: CRISIL
Exporters with limited pricing power, and those which source raw materials locally will bear the brunt.
- Exporters with limited pricing power, and those which source raw materials locally will bear the brunt.
- Impact would be much lower at around 150 basis points for pharmaceuticals and agrochemicals.
- IT sector would be the least affected due to extensive hedging practice there.
- Gems and jewellery sector will face a minimal impact as exports largely match the imports.
The sharp appreciation in the rupee against the U.S. dollar may adversely impact profitability of exporters in the April-June quarter, according to CRISIL Ratings.
Exporters with limited pricing power, and those which source raw materials locally will experience a dent in earnings, the ratings agency said in a media statement. Typically, sectors that are most vulnerable to a stronger rupee include leather, textiles, meat, seafood and basmati rice, it added.
Foreign currency losses for exporters could range between 2-3 percentage points, given that the rupee appreciation remains around the 4 percent range, CRISIL said.
While a majority of exporters have weathered the forex storm so far, any significant rise in the rupee from here would impact credit profiles of exporters in the vulnerable sectors.Anuj Sethi, Senior Director, CRISIL Ratings
The rupee has been steadily appreciating against the U.S. dollar, strengthening 5.2 percent this calendar year. The rupee’s rally in the January-March quarter was the most for any fourth quarter since the year 1975, as foreign investors poured over $12 billion into stocks and bonds as the appetite for emerging market assets improved and as Prime Minister Narendra Modi’s party swept key state elections that boosted bets for more economic reforms.
CRISIL said that the impact would be much lower at around 150 basis points for pharmaceuticals and agrochemicals, as imports provide them a partial natural hedge against foreign currency risks.
The information technology sector would be the least affected due to extensive hedging practice there, the statement said. The gems and jewellery sector will face a minimal impact as exports largely match the imports, it added.
Exporters in the vulnerable sectors too have increased their currency hedges and are trying to adjust prices to cushion the impact, CRISIL said. Sethi added that the rupee's relative strength versus competing currencies, and business challenges constrain the competitiveness of exporters in some sectors.